CGT Determination Number 11

TD 11

Capital Gains: What is the date of acquisition of an asset purchased at the expiry of a lease agreement?

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FOI status:

may be releasedFOI number: I 1019015

1. If an arrangement is to be accepted as a lease for income tax purposes the lessee can have no right, express or implied, to purchase the leased asset at the expiry of the lease ( Taxation Ruling IT 28).

2. The existence of such a right would result in the payments under the arrangement being treated as capital payments for purchase, rather than as lease rentals.

3. The purchase of a leased asset by a lessee at the end of a lease is therefore a separate transaction unrelated to any terms of the lease agreement.

4. The date of acquisition would be determined by the date on which this separate transaction was entered into.

Example:

A lessee entered into a lease agreement on 23 June 1984.

On 23 June 1988, the lessee purchased the leased asset for its residual value, and later sold it at a profit.

The date of acquisition of the leased asset is taken to be 23 June 1988. Note: The above should be distinguished from a Hire Purchase Agreement under which title in an asset will or may pass to the hirer at the end of the agreed period. In this case, the date of acquisition of this asset is the date the Hire Purchase Agreement was entered into.

Commissioner of Taxation
10 September 1991

References

ATO references:
NO N.O. 12.87/6061-6

Subject References:
Leased assets;
Date of acquisition